Summer is fading fast and the days are getting shorter, so we can be assured fall is around the corner. With the change of seasons comes the long-awaited change in tax laws as promised by both the President and Congress last spring.

On September 13, House Ways and Means Chairman Richard E. Nel (D-MA) released the section-by-section text of the current House version of the Build Back Better Act, the budget reconciliation bill that contains the pending tax reforms. The text of the new bill contains a few tax surprises worth noting for taxpayers who want to be prepared for the cooler tax climate ahead.

Missing from the newest House bill were provisions proposed by President Biden under his American Families Plan this past April, which would have dramatically changed the taxation of capital gains. Those provisions, which also appeared in the President’s annual “Green Book” of proposed tax-revenue initiatives, would have subjected countless heirs to additional capital-gains tax on assets they would receive via inheritance, and at rates as high as 43.4 percent.

If the latest version of the bill passes this fall, those who inherit assets will continue to avoid an additional capital-gains tax since the current law will be left unchanged. This law allows the tax basis of inherited assets to be “stepped up” upon the transferring taxpayer’s death to fair-market value. All is not good news, however, in that the new bill did introduce an October surprise by reducing the Federal Estate Tax Credit equivalent from its current historic high of $11.7 million per person, to the much lower pre-Trump-era level of $5.85 million per person. With an effective date for those provisions of January 1, 2022, there may be time for taxpayers to act by gifting prior to the end of the year to lock in the higher exemption equivalent before the snow flies.

On the income tax side, higher individual and income tax rates continue to be likely October goblins. If the current legislation holds, taxpayers are likely to see a return of the 39.6 percent tax rate for high-income earners, with a corresponding increase to the corporate tax rate from its flat rate of 20 percent to a graduated rate structure capped at 26.5 percent. The new fall color added in the proposed legislation is a new, higher marginal-capital-gains rate of 25 percent, up from today’s highest marginal rate of 20 percent, with an additional possible three percent surcharge tax for high income individuals, estates and trusts.

The legislative rewrites and sessions ahead will be critical as the new tax landscape takes final form. Grab your marshmallows and cider, sit back and relax, knowing we will be here to carve it up for you in the weeks ahead.


Author Michael T. Cyrs Senior Director of Wealth Transfer

Mike has nearly 30 years' experience as a private attorney and senior wealth transfer advisor concentrating in complex estate and business succession planning matters; estate, gift and generation skipping taxation; and advising clients regarding administration of highly taxable estates and trusts.

About Savant Wealth Management

Savant Wealth Management is a leading independent, nationally recognized, fee-only firm serving clients for over 30 years. As a trusted advisor, Savant Wealth Management offers investment management, financial planning, retirement plan and family office services to financially established individuals and institutions. Savant also offers corporate accounting, tax preparation, payroll and consulting through its affiliate, Savant Tax & Consulting.

©2021 Savant Capital, LLC dba Savant Wealth Management. All rights reserved.

Savant Wealth Management (“Savant”) is an SEC registered investment adviser headquartered in Rockford, Illinois. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments and/or investment strategies recommended and/or undertaken by Savant, or any non-investment related services, will be profitable, equal any historical performance levels, be suitable for your portfolio or individual situation, or prove successful. Please see our Important Disclosures.